Where is the Top of the Bubble?Posted by ell_13 on 12/27/13 at 9:56 am

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"Bubble" may not be the right word, but you can see what I'm talking about with the link. What side of the fence are you on? Do we come down significantly as in the past? Or is the market priced as it should be and we continue upward/even for some time?

re: Where is the Top of the Bubble?Posted by ell_13 on 12/27/13 at 10:07 am to LSURussian

So you think there is one?

What could trigger the drop and investors taking gains and waiting for a lower price point driving it even lower? Tapering won't do it. Most of the down Euro countries seemed to have bounced off their lows. No major world conflicts currently in the way. Student Loan defaults? China economy falls?

quote:Tapering won't do it. Most of the down Euro countries seemed to have bounced off their lows. No major world conflicts currently in the way. Student Loan defaults? China economy falls?

Always remember that no matter what, markets are based on supply and demand. All other things are just marginal factors that could affect those two primary factors. When people on CNBC have some explanation as to why markets went up or down for the day, 70% of the time its really bull shite. They are paid to come up with easily digestible explanations that may or may not have anything to do with what's happening.

If you have a Bloomberg terminal there are some good indicators for retail v institutional for short-term rates and a little bit of equities. However, EPFR is still the best overall retail versus institutional flow data website you can get. There are better sites for asset class specific data than EPFR (Money Market Intelligence for short-term funds, etc.), but there isn't a better aggregate site.

My 401k is set with a 10 year time horizon so I don't really reallocate that much. My personal account only trades ETFs because that's the only thing I can personally trade without pre-clearance. The problem with ETFs is the amount of decay you experience from holding over time so my time horizon is usually a couple days to a week, so I trade those on techincals. Obviously can't talk firm positioning.

The supply/demand post was also meant as a cover for me. I thought equities were a little overpriced to begin the year, +27% later I think they're ridiculously overpriced so I'm no muse by any means.

My worry is that everyone know that equities are overpriced. No one denies this because it's exactly what the fed/gov intended to do with their rates. They wanted to force investors into that market. Well, now it's priced higher than it ever has been.

And when people start to see the downturn (however it gets started)? They'll take their profits and hold out for the cheapest price. Well, everyone can't do this; equities would collapse and we'd have another huge crash. So what happens? Can the fed release rates to decent levels again?

quote:So what happens? Can the fed release rates to decent levels again?

This is a question on everyone's mind that nobody has the answers for. Not even the Fed.

quote:The market is overpriced on an absolute basis but not a relative basis. I still think we are in a sweet spot with the 10-year at 3% and low inflation.

Relative to what is the question. All asset classes are artificially high, just look at Sharpe ratios over the past 10 and 5-years across everything, it's pretty striking. During May - June, there wasn't a rotation into equities, there was a rotation into cash. HY has had some of their best performances ever in recent years due to historically tight spreads and historically low interest rates holding down default rates, and that asset class has seen pretty substantial inflows. How will it react when the 10-year is back at 3.5%? It's a worry that almost everyone has, where do you go? Equities may be the answer but I'm not very convinced by any means.